-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SxY5g2vvDOI8DLJ/8ps4rYfkUwdQFlccmnoRVVYZ5ZCQS6crVc3x0OquB9MC58uG BE68dzdjo6M+f8kRUbMfng== 0000950144-00-002249.txt : 20000215 0000950144-00-002249.hdr.sgml : 20000215 ACCESSION NUMBER: 0000950144-00-002249 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLIGHTSERV COM CENTRAL INDEX KEY: 0000722839 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 232265039 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-08662 FILM NUMBER: 543342 BUSINESS ADDRESS: STREET 1: 3343 PEACHTREE ROAD N E STREET 2: SUITE 530 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4048692599 MAIL ADDRESS: STREET 1: 2930 WELLINGTON CIRCLE SUITE 101 CITY: TALLAHASSEE STATE: FL ZIP: 32308 FORMER COMPANY: FORMER CONFORMED NAME: PROACTIVE TECHNOLOGIES INC DATE OF NAME CHANGE: 19950921 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE MEDICAL CORPORATION DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE MEDICAL CORP INC DATE OF NAME CHANGE: 19910103 10QSB 1 FLIGHTSERV.COM 1 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIESEXCHANGE ACT OF 1934 For the transition period from _____________to_________________ Commission File Number 1-8662 FLIGHTSERV.COM (formerly Proactive Technologies, Inc.) (Exact name of registrant as specified in its charter) DELAWARE 23-2265039 (State of Incorporation) (IRS Employer Identification No.) 3343 PEACHTREE ROAD NE SUITE 530 ATLANTA, GA 30326 (404) 869-2599 (Address of registrant's principal executive offices including zip code and telephone number, including area code) Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check whether the issuer filed all reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The number of shares outstanding of the Registrant's Common Stock as of February 11, 2000: 31,297,281 Transitional Small Business Disclosure Format: Yes [ ] No [X] 1 2 FLIGHTSERV.COM
TABLE OF CONTENTS PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 Consolidated Financial Statements (Unaudited) Consolidated Balance Sheet December 31, 1999 and June 30, 1999 3 Consolidated Statements of Operations For the Three and Six Months Ended December 31, 1999 and 1998 4 Consolidated Statements of Cash Flows For the Six Months Ended December 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-11 ITEM 2 Management's Discussion and Analysis Of Financial Condition and Results of Operations 11-15 PART II OTHER INFORMATION ITEM 1 Legal Proceedings 15 ITEM 2 Changes in Securities 16 ITEM 3 Defaults Upon Senior Securities 16 ITEM 4 Submission of Matters to a Voice of Security Holders 16 ITEM 5 Other Information 16 ITEM 6 Exhibits and Reports on Form 8-K 16
2 3 FLIGHTSERV.COM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS December 31, June 30, 1999 1999 ------------ ---------- (unaudited) Cash and cash equivalents $ 1,240 $ 3,486 Accounts and notes receivable 1,059 914 Net assets (liabilities) of discontinued operations (203) 123 Deferred costs and other assets 748 470 Predevelopment costs 1,100 1,085 Property and equipment, etc 8,871 8,414 -------- -------- Total assets $ 12,815 $ 14,492 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable $ 7,772 $ 7,830 Accounts payable and accrued expenses 245 631 Accrued interest payable 711 862 -------- -------- Total liabilities 8,728 9,323 -------- -------- Commitments and contingent liabilities Shareholders' equity: Common stock, $.04 par value, 60,000,000 share authorized, 31,297,281 and 30,543,235 issued and outstanding, respectively 1,271 1,264 Additional paid-in capital 44,534 18,090 Accumulated deficit (41,565) (13,853) Treasury stock - at cost (484,930 and 1,050,000 shares, respectively) (153) (332) -------- -------- Total shareholders' equity 4,087 5,169 -------- -------- Total liabilities and shareholders' equity $ 12,815 $ 14,492 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FLIGHTSERV.COM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Three Months Six Months ------------------------------ ------------------------------- 1999 1998* 1999 1998* ------------ ------------ ------------ ------------ Revenue and other income: Sales $ -- $ -- $ -- $ -- Other income 253 -- 526 -- ------------ ------------ ------------ ------------ Total revenues 253 -- 526 -- ------------ ------------ ------------ ------------ General and administrative expenses 1,311 72 2,211 117 Expenses related to issuance of stock options and warrants 15,298 -- 25,497 -- Depreciation and amortization 147 -- 289 -- Interest expense 162 -- 241 -- ------------ ------------ ------------ ------------ Net loss before discontinued operations (16,665) (72) (27,712) (117) Loss from discontinued operations -- (5,227) -- (5,530) ------------ ------------ ------------ ------------ Net loss $ (16,665) $ (5,299) $ (27,712) $ (5,647) ============ ============ ============ ============ Basic and diluted net loss per share: Loss per share before discontinued operations $ (.55) -- $ (.91) -- Discontinued operations -- $ (.33) -- $ (.35) ------------ ------------ ------------ ------------ Net loss $ (.55) $ (.33) $ (.91) $ (.35) ============ ============ ============ ============ Weighted average shares outstanding 30,551,431 15,970,474 30,547,333 15,970,474 ============ ============ ============ ============
* Reclassified The accompany notes are an integral part of these consolidated financial statements. 4 5 FLIGHTSERV.COM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
1999 1998* -------- ------- Cash flows from operating activities: Loss before discontinued operations $(27,712) $ (117) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 289 -- Expense related to issuance of stock options and warrants 25,497 -- Changes in operating assets and liabilities: Accounts and notes receivables (145) -- Deferred costs and other assets (429) -- Accounts payable and accrued expenses (447) -- Accrued interest payable (151) -- -------- ------- Cash used in operating activities before discontinued operations (3,098) (117) Discontinued operations, net 519 6,098 -------- ------- Net cash (used in) provided by operating activities (2,579) 5,981 -------- ------- Cash flows from investing activities: Purchases of property and equipment (594) -- Predevelopment costs (15) -- Investing activities of discontinued operations, net -- (22) -------- ------- Net cash used in investing activities (609) (22) -------- ------- Cash flows from financing activities: Principal debt payments (58) -- Sale of common stock 1,000 -- Financing activities of discontinued operations, net -- (5,647) -------- ------- Net cash provided by (used in) financing activities 942 (5,647) -------- ------- Net (decrease) increase in cash and cash equivalents (2,246) 312 Cash and cash equivalents at beginning of period 3,486 100 -------- ------- Cash and cash equivalents at end of period $ 1,240 $ 412 ======== =======
* Reclassified The accompany notes are an integral part of these consolidated financial statements. 5 6 FLIGHTSERV.COM AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These financial statements include the operations of flightserv.com ("FSW") and its subsidiaries (collectively the "Company"). Since discontinuing its residential real estate operations in fiscal 1999, the Company has been in the development stage of a new Internet-based, private jet aviation services business. All significant inter-company balances and transactions have been climinated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission. Certain prior period amounts have been reclassified to conform to the current fiscal period presentation. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position of the Company as of December 31, 1999 and of the results of operations for the periods presented have been included. The financial data at June 30, 1999 is derived from audited financial statements which are included in the Company's Form 10-KSB and should be read in conjunction with the audited financial statements and notes thereto. Interim results are not necessarily indicative of results for the full year. Cash and Cash Equivalents The Company classifies as cash equivalents any investments which can be readily converted to cash and have an original maturity of less than three months. At times cash and cash equivalent balances at a limited number of banks and financial institutions may exceed insurable amounts. The Company believes it mitigates its risks by depositing cash or investing in cash equivalents in major financial institutions. Real Estate Investments Real estate investments are recorded at the lower of cost or estimated fair value. Development costs and real estate taxes are capitalized while development is in progress. Depreciation commences at the time the Company begins collecting rental income. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line basis over the assets' estimated useful lives. Expenditures for maintenance and repairs are expensed as incurred and expenditures for improvements which extend the useful life or add value to the asset are capitalized. Sales and disposals of assets are recorded by removing the related cost and accumulated depreciation amounts with any resulting gain or loss reflected in income. Net Loss Per Share The Company computes net loss per share in accordance with SFAS No. 128, "Earnings per Share" which requires dual presentations of basic earnings per share ("EPS") and diluted EPS. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding and potentially dilutive shares outstanding during the period. Options and warrants to purchase 19,960,000 shares of Common stock were outstanding at December 31, 1999. Outstanding options and warrants could potentially dilute EPS in the future but have not been included in the computation of diluted net loss per share in the December 1999 periods as the impact would have been 6 7 antidilutive. There were no options or warrants outstanding at December 31, 1998. Income Taxes The Company's income taxes are accounted for in accordance with the liability method as provided under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly, deferred income taxes are recognized for the tax consequences of differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any benefits that, based on available evidence, are not expected to be realized. The Company has incurred significant net operating losses ("NOL's") from both its continuing and discontinued operations. Due to the substantial limitations placed on the utilization of such NOL's following a change in control and the uncertainties related to the Company's ability to generate taxable income from it's continuing operations, no related deferred tax benefit for future periods has been recorded. The Company's 1996 and one of its subsidiary's 1994 and 1995 tax returns are currently under examination by the Internal Revenue Service, but no reports have yet been issued. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. BUSINESS SEGMENTS Private Jet Aviation Travel Services Business Since April 1999 FSW has been developing an Internet-based, private jet aviation travel services business including an Internet Web site. In the three and six months ended December 31, 1999, FSW incurred approximately $1,175,000 and $2,017,000, respectively, of general and administrative expense in connection with development of this new business. The expense includes consulting fees in the aviation industry, Internet operations, Web site development, marketing, and business plan areas and other professional services. In addition, operating expenses reflect warrants that FSW has issued to purchase its common stock in return for consulting services and in connection with strategic vendor alliances related to the private jet aviation travel services business. At December 31, and June 30, 1999, FSW had capitalized $575,000 and $88,500, respectively, in Internet Web site development costs. Commercial Real Estate Investments In fiscal 1999, the Company purchased an entity that owns two shopping center properties in the Atlanta, Georgia area. The mortgage financing on the shopping center properties includes an additional interest agreement which provides that the lender receive 50% of the cash flow and of the excess of appraised value over the mortgage loan balance at the time of any sale of the property. The Company has recorded deferred debt discount cost and a corresponding accrued interest liability to reflect the lenders allocation of the excess appraisal value provided in the additional interest agreement. The deferred debt discount is being amortized over the 36 month term of the mortgage loans. 7 8 Stratos Inns Concept In fiscal 1999, the Company purchased PDK Properties, Inc. ("PDK") which holds a long-term ground lease at Dekalb-Peachtree Airport in Dekalb County, Georgia and owns Stratos Inns, a hotel and hospitality business concept. The lease provides for a 54 month development period and a 30 year lease term after a hotel is constructed and opened. The Company has completed a preliminary study for development of its first Stratos Inn hotel and is evaluating its options in connection with PDK. At December 31 and June 30, 1999, the Company's investment in predevelopment costs of PDK was $1,100,000 and $1,085,000 respectively. NOTE 3. DISCONTINUED OPERATIONS Effective January 1, 1999 the Company discontinued its residential real estate development operations. Residential real estate operations include developed lots, undeveloped land, and equity investments in residential real estate development companies, partnerships, and joint ventures. The December 1998 financial statement amounts have been reclassified to reflect the discontinued operations. The Company has made certain estimates regarding the fair asset values and costs to dispose of the remaining assets of the discontinued operations. In July 1999, the Company sold certain assets of discontinued operations with a net carrying value of approximately $1,100,000 for cash to an outside third party. In September 1999, the Company sold certain assets of discontinued operations for approximately $3.2 million consisting of the assumption of $2.2 million of mortgage indebtedness and $1.0 million in notes receivable. Following is a summary of the net assets (liabilities) of discontinued operations (in thousands):
December 31, June 30, 1999 1999 ------------ --------- Real estate inventories $ 132 $ 4,596 Accounts and notes receivable 1,000 -- Investments in real estate equity securities -- 677 Notes and accrued interest payable (783) (4,450) Estimated expenses and other liabilities (552) (700) ------- ------- $ (203) $ 123 ======= =======
NOTE 4. ISSUANCE OF COMMON STOCK As of January 18, 2000, the Company entered into common stock purchase agreements (the "Purchase Agreements") with Acqua Wellington Value Fund, Ltd., ("AWVF"), and Four Corners Capital, LLC, ("Four Corners" and, together with AWVF, the "Investors"), which provide for an equity financing package consisting of the sale of restricted common stock and warrants with total proceeds of up to $59.7 million, assuming the Investors exercise all warrants. Under the terms of the Purchase Agreements, the Investors agreed to purchase from the Company, for an aggregate purchase price of $11 million, (i) 1,815,779 shares of common stock; (ii) warrants (the "Fixed Warrants") to purchase up to 2,641,135 shares of common stock at the purchase price of $6.058 per share; and (iii) warrants (the "Variable Warrants") to purchase up to 3,342,684 shares of common stock at a purchase price equal to the lesser of $9.772 per share or 90% of the volume weighted average price of the common stock for the five trading days prior to the exercise of the warrants. The Fixed Warrants and 1,980,851 of the Variable Warrants expire 18 months after the date of issuance. The remaining Variable Warrants expire five years after the date of issuance. The exercise of 660,976 of the Fixed Warrants and 495,732 of the Variable Warrants is subject to prior stockholder approval. Pursuant to the Purchase Agreements, Four Corners purchased 165,070 shares of restricted common stock for $1,000,000. The 8 9 AWVF transaction is to be completed in two equal tranches. In the first tranche, AWVF purchased for $5,000,000 825,354 shares of restricted common stock and warrants to purchase up to 1,630,075 shares of common stock. The second tranche for $5,000,000 is expected to close no later than February 29, 2000. In addition, the Company, AWVF and Four Corners entered into a Registration Rights Agreement pursuant to which the Company provided certain registration rights to AWVF and Four Corners with respect to both the restricted common stock and the shares underlying the warrants issued to the Investors under the Purchase Agreements as well as shares and shares underlying certain options and warrants previously issued to Four Corners. In the event that a registration statement does not become effective within 120 days of January 18, 2000, the exercise price for the Variable Warrants will be reduced by 10% and by an additional 10% for each 30 day period thereafter until the registration statement is declared effective. The proceeds to the Company from the sales of common stock pursuant to the Purchase Agreements will be reduced by investment banking fees, legal costs and other related expenses. In December 1999, the Company issued 400,000 shares of restricted common stock from treasury to certain parties including a former director and a former officer of the Company. The shares were issued pursuant to an agreement resolving outstanding issues related to certain prior transactions involving the Company's discontinued real estate operations which reduced the related asset valuations by $193,000. In connection therewith, the Company entered into a Registration Rights Agreement providing the holders of such shares with certain registration rights. In December, 1999, the Company issued 188,976 shares of common stock in connection with the cashless exercise of 200,000 stock options with an exercise price of $0.44. NOTE 5. STOCK OPTIONS AND WARRANTS In fiscal 1999 and the six months ended December 31, 1999, FSW issued nonqualified stock options to purchase its common stock to directors, officers and employees. The following table summarizes the stock options outstanding:
12/31/99 6/30/99 --------------------- -------------------- Option Option Shares Price Shares Price ---------- ------ --------- ------ 2,000,000 $0.44 2,000,000 $0.44 2,800,000 0.42 2,600,000 0.42 50,000 0.50 50,000 0.50 200,000 1.00 200,000 1.00 100,000 1.75 -- -- 5,000,000 2.50 -- -- 2,975,000 4.00 -- -- ---------- --------- 13,125,000 4,850,000 ========== =========
All of the outstanding options have a 10-year term and were fully vested at December 31, 1999, except for 200,000 options with an exercise price of $1.00 and 50,000 with an exercise price of $1.75 that vest over a two year period. Of the 13,125,000 options outstanding, 11,325,000 require stockholder approval. In connection with its new private jet aviation travel services business, FSW issued in fiscal 1999 and the six months ended December 31, 1999 warrants to purchase its common stock in exchange for consulting and legal services and for strategic vendor alliances provided by outside third parties. The following table summarizes the outstanding warrants issued to outside third parties: 9 10
12/31/99 6/30/99 --------------------- --------------------- Option Option Shares Price Shares Price --------- ------ --------- ------ 200,000 $0.42 200,000 $0.42 200,000 0.44 200,000 0.44 1,450,000 0.50 1,450,000 0.50 400,000 0.75 400,000 0.75 2,985,000 1.75 100,000 1.75 400,000 2.50 -- -- 1,200,000 4.00 -- -- --------- --------- 6,835,000 2,350,000 ========= =========
All of the warrants issued to date by FSW are vested, except for 50,000 warrants at an exercise price of $.50 that vest over two years. In January 2000, FSW issued 8,353,743 warrants to purchase its common stock at per share exercise prices ranging from $2.00 to $9.77, including the warrants issued in connection with the Purchase Agreements described in Note 4. Following is a summary of certain information regarding the Company's outstanding options and warrants:
Weighted Weighted Average Average Remaining Exercise Grant-date Contractual Number Price Fair Value Life ---------- -------- ----------- ------------ Outstanding at 6/30/99 7,200,000 $0.37 -- -- ---------- Grants during the period: Exercise price equal to market 5,000,000 $2.50 $1.93 -- Exercise price below market 7,960,000 $2.85 $4.73 -- ---------- Total granted 12,960,000 $2.71 -- -- ---------- Exercised during the period 200,000 $ .44 -- -- ---------- Outstanding at 12/31/99: Exercisable at $.42 to $1.00 7,300,000 $0.47 -- 9.4 years Exercisable at $1.75 to $2.50 8,485,000 $2.23 -- 9.6 years Exercisable at $4.00 4,175,000 $4.00 -- 9.9 years ---------- Outstanding at 12/31/99 19,960,000 $1.94 -- -- ---------- Exercisable at 12/31/99: Exercisable at $.42 to $1.00 7,050,000 $0.46 -- -- Exercisable at $1.75 to $2.50 8,435,000 $2.23 -- -- Exercisable at $4.00 4,175,000 $4.00 ---------- Exercisable at 12/31/99 19,660,000 $1.95 -- -- ==========
10 11 The Company accounts for options issued to employees under APB No. 25 and options and warrants issued to non-employees under FASB No. 123. The following information is based on estimating the fair value of grants under the above plans based on the provisions of FASB No. 123. For the stock options issued to employees, the fair value of each option has been estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 5%, expected life for the options of five years, no expected dividend yield and expected volatility of 100%. For the options and warrants issued to non-employees, the fair value of each award has been estimated using the same assumptions. The total compensation cost recognized during the three and six months periods ended December 31, 1999 for these awards was $15,298,000 and $25,497,000, respectively. The Company's pro forma net loss and net loss per share for the six months ended December 31 1999, assuming compensation cost was determined under FASB No. 123 for all options and warrants, would have been the following: Net loss before discontinued operations $ (45,526,000) Net loss from discontinued operations $ - Net loss $ (45,526,000) Net loss per share before discontinued operations $ (1.49) Net loss per share from discontinued operations -- Net loss per share $ (1.49) NOTE 6. RELATED PARTY TRANSACTIONS At December 31, 1999, the Company holds a note receivable in the amount of $587,000 due from an entity owned by a former officer of the Company. The note is secured by residential real estate. In connection with consulting services related to the Company's Internet-based, private jet aviation travel service business provided by Mr. Bert Lance, the father of the Company's President and Chief Executive Officer, the Company granted in January 2000 warrants to purchase 1,000,000 shares of its common stock to the Bert Lance Grantor Trust. The warrants have an exercise price of $4.00 per share. In November 1999, the Company paid Mr. Bert Lance $50,000 in consulting fees. ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Overview Effective January 1, 1999 the Company discontinued its residential real estate development business. As a result, the statement of operations for the three and six months ended December 31, 1999, reflects the operating loss of that business as discontinued operations. The continuing operations include development of an Internet-based private aviation travel services business, limited commercial real estate operations, and other investments. Results of Continuing Operations The Company's revenues in the three and six months ended December 31, 1999 were $253,000 and $526,000, respectively, represent lease income generated from the Company's shopping centers acquired in fiscal 1999. All of the 11 12 Company's revenues in the December 31, 1998 periods were generated by the residential real estate development operations and have been reclassified to discontinued operations. General and administrative expenses in the three and six months ended December 31, 1999 were $1,311,000 and $2,211,000 respectively compared to $72,000 and $117,000, respectively, in the comparable 1998 periods. These increases are due to increased compensation costs, consulting and legal fees, travel, and other costs associated with the development of the new Internet-based private aviation travel services business. In the three and six months ended December 31, 1999, the Company issued stock options to officers and directors and warrants to outside third parties and recognized $15,298,000 and $24,497,000, respectively of related non-cash expense. The Company's depreciation and amortization expense of $289,000 and interest expense of $241,000 in the six months ended December 31, 1999 reflect the costs of the shopping center operations acquired in January 1999. Management expects revenues to increase significantly upon the implementation of the Company's Internet-based, private jet aviation travel services business. However, management expects to continue to incur losses in connection with the development of its private jet aviation travel services business prior to implementing the Web site and cannot be certain as to when this new business will generate income. Discontinued Operations In the three and six months ended December 31, 1998, the Company incurred a loss of $5,227,000 and $5,530,000, respectively, from its discontinued residential real estate development operations. Liquidity and Capital Resources The net operating loss in the six months ended December 31, 1999 of $27,712,000 was partially offset by a $25,497,000 increase in paid-in capital related to the issuance of stock options and warrants. Also, the Company sold common stock ($940,000, net) and issued treasury stock ($193,000) resulting in a $1,082,000 net decrease in stockholders' equity. In the six months ended December 31, 1999, continuing operations used $3,098,000 of cash and the liquidation of certain assets of discontinued operations generated $519,000 of cash. In addition, the Company expended $594,000 on capitalized Web site software, furniture, and equipment. The Company will continue to incur start up costs and operating expenses prior to implementing its Web site. The Company's cash balance at December 31, 1999 is $1,240,000 compared to $3,486,000 at June 30, 1999. In January 2000, the Company entered common stock Purchase Agreements providing for the sale of common stock and warrants for initial consideration of $11 million and the possibility of total consideration of up to $59.7 million, if all warrants are exercised. Of the initial consideration, $6,000,000 has been funded to-date, including $1,000,000 as of December 31, 1999. The cash balance and funding from the Purchase Agreements is adequate, in management's opinion, to complete the implementation of the private jet aviation travel services business on the Internet Web site and to meet working capital requirements to commence marketing of the flightserv.com (TM) brand and begin to build market share. The Company's need to raise additional capital to implement and maintain the private jet aviation travel services business will depend upon, among other things, the initial level of customer interest in the services offered on the Company's Web site and the Company's ability to market the flightserv.com (TM) brand. FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS The Company's business, results of operations and financial condition are subject to many risks, including those set forth below. The following discussion highlights some of these risks and others are discussed elsewhere herein or in other documents filed by the Company with the Securities and Exchange Commission. In addition, statements in this quarterly 12 13 report relating to matters that are not historical facts are forward-looking statements based on management's belief and assumptions using currently available information. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it cannot give any assurances that these expectations will prove to be correct. Such statements involve a number of risks and uncertainties, including, but not limited to those set forth below. General FSW is in the process of developing an internet Web site to provide, as agent, travel services to the private jet aviation marketplace. Based on information published by the National Business Aviation Association, an industry group, private aviation generates more than $51 billion in annual economic activity. Private aviation aircraft are reported to carry over 145 million passengers per year. FSW intends through its Web site, www.flightserv.com, to distribute, as agent, private charter services, lodging, personal and aircraft protection services, ground transportation, concierge and other services. FSW will be compensated by a commission or fee for its services from the service provider. Supplier Agreements Simultaneously with the development of the Web site, FSW has been negotiating preferred partner agreements with suppliers of services to the private aviation marketplace. Its strategy in selecting preferred partners is to contract with premium service providers. To date, FSW has executed a preferred hospitality agreement with the Ritz-Carlton Hotel Company, LLC, a leading provider of luxury hotel rooms worldwide, and a Master Executive Protection Agreement with Vance International, Inc., a leading provider of personal and asset protection services. Under the agreement with Ritz-Carlton, member-users of the FSW Web site will be able to reserve hotel accommodations with Ritz-Carlton through the Web site and will be accorded Ritz-Carlton's "last room account" status, providing added assurance of being able to obtain a confirmed reservation. Under the agreement with Vance International, FSW is designated the exclusive private aviation Internet distributor of Vance's worldwide personal and aircraft protection services. FSW is in the process of negotiating agreements with other service providers including certified charter flight operators. Authority to operate charter aircrafts is granted by the Federal Aviation Administration (the "FAA") and the Department of Transportation of which the FAA is a part. FSW will serve as agent for operators having certificates from the FAA under Part 135 of Title 14 of the Code of Federal Regulations to provide such services. FSW will be dependent upon certified charter operators to provide all flight services. Web Site Development FSW has a working model of its Web site which it is testing and refining as it negotiates agreements with preferred suppliers. In addition to retaining Web site developers, FSW has worked closely with legal and other advisers to comply with all applicable legal and other requirements. Marketing FSW is currently evaluating the most effective methods to publicize its Web site and attract users to the Web site. It is also seeking strategic partners who can help publicize the Web site and attract customer traffic to it. Availability of Services FSW will not provide private aviation travel services directly but, instead, will offer, as agent, services provided by independent vendors through its Web site. As a result, the ability of FSW to enter into agreements, such as the preferred provider agreements with Ritz-Carlton and Vance, and to otherwise arrange for services to be available through its Web site is critical for the success of its business. While multiple sources exist for the services to be offered through the Web site, FSW will act only as an agent and have limited or no control of the availability, actual delivery, or quality of the 13 14 services offered to its member-users or the price offered for such services. In addition, there is no guarantee that FSW will be able to enter into additional preferred partnership agreements with other service providers. At this time, FSW is negotiating contracts with certified charter providers and management believes that certified charter operators will want to provide charter services through the Web site. Failure to contract with certified charter operators would have a material adverse effect on FSW. Competition The services to be offered by FSW are available directly from the providers and through other channels including the Internet. Many of FSW's competitors have financial resources substantially greater than FSW. FSW has contracted exclusive or preferred Internet distribution rights with certain of service providers and intends to seek such rights from other service providers, but there can be no assurance that FSW will be able to obtain exclusive or preferred or rights in the future. Lack of Operating History/Expectation of Operating Losses The Company has discontinued its residential real estate development business and has not yet implemented its Web site. As a result, there is no meaningful operating history upon which to base an evaluation of the Company's Internet-based private aviation travel services business and prospects. The Company incurred losses in fiscal 1999 and the first six months of fiscal 2000 and may continue to incur losses in the remainder of fiscal 2000 as the result of the need to incur substantial marketing and promotion costs and systems and development costs. Dependence on the Internet and Development of Brand Name The Company's future success depends upon the continued growth in the use of the Internet generally and the active use of its Web site by private aviation passengers to make flight reservations and arrange for other travel related services. The Company believes that its Web site will be the first time both charter flight reservations and other travel related services are offered through one Web site and, therefore, it is impossible to predict the number of existing private aviation passengers and the number of new private aviation passengers that will use the Web site. The Company believes that broad recognition and favorable consumer perception of the flightserv.com(TM) brand name will be essential to attract existing and new private aviation passengers to the Web site and that successful development of the flightserv.com(TM) brand will depend on the success of the Company's marketing efforts, the breadth and quality of the services available on the Web site, the successful completion of transactions through the Web site and the ability of the Company to provide adequate support and customer service. There is no assurance that the Company will be able to adequately develop its brand name or otherwise attract a sufficient number of Web site users. Risk of System Failure/Lack of Capacity The successful implementation and continued operation of the Web site will depend upon communications hardware and computer hardware and software made available by a third party and any interruptions in service caused by the failure of these systems will be outside of the control of the Company. A system failure that causes an interruption in service to the Web site or that results in slower response times from the Web site could be disruptive to FSW's business and could damage FSW's brand name and result in fewer visits to the Web site. In addition, high volume could strain the capacity of the software or hardware used in connection with the Web site resulting in slower response times or system failures which could adversely affect sales and services. Internet Security Issues The secure transmission of confidential information over the Internet will be important in maintaining user and vendor confidence in the Web site. The Company will rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information including confidential credit card information. However, there can be no assurance that advances in computer capabilities or other developments will not result in unauthorized 14 15 persons obtaining access to confidential customer information in the Web site exposing the Company to potential losses. Management of Potential Growth The Company is expected to expand its business after the implementation of the Web site. This growth is expected to place significant demands on the Company's management, operational, and financial resources. In order to manage expected growth, the Company will be required to expand existing operations and to train, manage and expand its employee base. Further, the Company's management will be required to maintain relationships with various service providers and to maintain control over the strategic direction of the Company. If the Company is unable to manage growth effectively, the Company's business, results of operations, and financial condition will be adversely affected. Intellectual Property The Company regards its copyrights, service marks, trademarks, trade dress, trade secrets, domain names and similar intellectual property as critical to its success and relies on trademark and copyright law, trade secret protection and confidentiality agreements to protect its intellectual property rights. Nonetheless, there can be no assurance that the Company will be able to secure significant protection for its intellectual property rights. Government Regulation Certain segments of the travel industry are regulated by the United States Government and certain services offered by the Company are affected by such regulations. The operators of charter flights upon whom the Company's service depend are subject to rigorous and continuous certification requirements of the FAA. The Company is also subject to regulations applicable to businesses generally and laws or regulations directly applicable to the Internet. While currently there are few laws directly applicable to the Internet, the increase in Internet commerce may result in new laws or regulations relating to Internet commerce including regulations regarding privacy, pricing and state and local taxation which could affect the Company. Volatility of Stock Price/Potential for Future Sales of Restricted Securities The market price of the Company's common stock is highly volatile and is likely to continue to be subject to wide fluctuations in response to factors including the announcement by the Company of future partnership agreements or other corporate developments, the limited number of freely tradable shares in public hands, and the timing and successful implementation of the Web site. Additionally, in recent years many companies with Internet related businesses have experienced extreme price and volume fluctuations that have often been unexplained by the operating performance of such companies. The Company's stock price could also be negatively effected by the future sale of shares of restricted common stock, including shares of restricted common stock underlying options and warrants that have been issued by the Company. Approximately 22,000,000 issued and outstanding shares of the Company's common stock are believed to be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. Rule 144 provides generally that restricted securities must be held for one year prior to resale and provides certain additional limitations on the volume of such shares that a beneficial owner may sell in any three month period. Generally, non-affiliated owners may sell restricted shares that have been held for at least two years without volume limitations. In addition, the Company has issued warrants and options which, if exercised, could result in up to an additional 28,313,743 shares of the Company's common stock. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. The Company and its subsidiaries are involved from time to time in various claims and legal actions in the ordinary course of business. In the opinion of management, the Company and its subsidiaries are not party to any legal 15 16 proceedings, the adverse outcome of which, would have any material adverse effect on its business, its assets, or results of operations. ITEM 2. CHANGES IN SECURITIES The information in Notes 4 and 5 to the financial statements set forth in Part I Item 1 hereof and in the Company's Current Report on Form 8-K filed on January 28, 2000 is incorporated herein by reference. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits and Index of Exhibits 2.1 Common Stock Purchase Agreement dated as of January 18, 2000 between flightserv.com and Acqua Wellington Value Fund, Ltd. (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed January 28, 2000) 2.2 Common Stock Purchase Agreement dated as of January 18, 2000 between flightserv.com and Four Corners Capital, LLC (incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed January 28, 2000) 4.1 Registration Rights Agreement dated as of January 18, 2000 between flightserv.com and Acqua Wellington Value Fund, Ltd. and Four Corners Capital, LLC (incorporated herein by reference to the Company's Current Report on Form 8-K filed January 28, 2000) 4.2 Registration Rights Agreement between the Company and Langdon Flowers, Jr., Langdon Flowers, Sr., and George McIntosh dated December 31, 1999. 10.1 Form of Officer/Director Non-Qualified Option Agreement dated December 2, 1999. 10.2 Schedule of Option Agreements. 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K 1) During the quarter ended December 31, 1999 - None 2) The Company filed the following report on Form 8-K with the Securities and Exchange Commission on January 28, 2000 (i) The Company's Current Report on Form 8-K filed with the Securities and Exchange Commission reporting the sales of common stock and warrants pursuant to certain purchase agreements effective January 18, 2000. SIGNATURE In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. flightserv.com (Registrant) Date: February 14, 2000 By: /s/ William L. Wortman --------------------------- William L. Wortman Vice President and Chief Financial Officer 16 EX-4.2 2 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 FLIGHTSERV.COM REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is entered into as of December 31, 1999 by and among Flightserv.com, a Delaware corporation (the "Company"), and holders of the Company's common stock listed on Exhibit A hereto as the "Holders". The Company and the Holders are sometimes referred to herein collectively as the "Parties" or individually as a "Party." RECITAL WHEREAS, in connection with settlement of certain claims between the Company and the Holders, the parties hereto desire to enter into this Agreement to extend registration rights to the Holders. AGREEMENT In consideration of the foregoing and of the mutual promises and covenants contained herein, the Parties agree as follows: 1. Registration Rights. 1.1 Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings. (a) "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (b) "Holder" means any person or persons to whom Registrable Securities were originally issued or qualifying transferees under Section 1.9 hereof who hold Registrable Securities. (c) "Initiating Holders" shall mean any Holder or Holders of at least fifty percent (50%) of the Registrable Securities. (d) "Registrable Securities" means (i) the common stock of the Company held by the Holders on the date of this Agreement; and (ii) stock issued in respect of the stock referred to in (i) as a result of a stock split, stock dividend, recapitalization or the like, which have not been sold to the public. 2 (e) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. (f) "Registration Expenses" shall mean all expenses, except "Selling Expenses" defined below, incurred by the Company in complying with Sections 1.2, 1.3 and 1.4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration. (g) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (h) "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all reasonable fees and disbursements of counsel for the selling Holders. 1.2 Requested Registration. (a) Request for Registration. If the Company receives from Initiating Holders a written request that the Company effect a registration covering not less than thirty percent (30%) of the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate compliance with applicable regulations issued under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities as are specified in such request, together with all or such portion of the 2 3 Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to take any action to effect any such registrations, qualification or compliance pursuant to this Section 1.2: (A) Before the effective date of the registration statement to be filed in connection with the common stock financing currently being arranged on behalf of the Company by Four Corners Capitol, LLC (the "Four Corners Registration Statement"); (B) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (C) After the Company has effected one such registration pursuant to this Section 1.2(a), and such registrations has been declared or ordered effective; and has remained effective for at least 120 days or such shorter period during which the distribution described in the registration statement has been completed; and (D) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future on the grounds that such a registration statement would force premature disclosure of a material pending transaction or event of the Company, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.2 shall be deferred for a period not to exceed ninety 3 4 days from the date of receipt of written request from the Initiating Holders, provided that the Company may not use this right more than once in any twelve month period. Subject to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. The Company agrees that the Holders, by signing this Agreement, shall be deemed to have made a written request pursuant to Section 1.2(a) that the Company effect a registration covering 400,000 shares of the Registrable Securities, and the Company agrees to use it best efforts to file a registration statement covering such 400,000 shares within 20 business days after the effective date of the Four Corners Registration Statement. The Company will use its best efforts to consummate the initial financing being arranged by Four Corners and to promptly file the Four Corners Registration Statement thereafter and will make commercially reasonable efforts to prosecute the Four Corners Registration Statement to effectiveness. (b) Underwriting. In the event that a registration pursuant to Section 1.2 is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the notice given pursuant to Section 1.2(a)(i). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.2, and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company, but subject to the reasonable approval of a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all participating Holders and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocable among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account (or for the account of other shareholders) in such 4 5 registration if the underwriter so agrees and if the number of Registrable Securities that would otherwise have been included in such registration and underwriting will not thereby be limited. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. 1.3 Company Registration. (a) Notice of Registration. If, at any time prior to the second anniversary of the effective date of the Four Corners Registration Statement, the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans, (ii) a registration relating solely to a transaction under Rule 145 under the Securities Act, (iii) a registration effected pursuant to Sections 1.2 or 1.4 hereof, or (iv) the Four Corners Registration Statement or any subsequent registration statement filed with respect to shares owned by the selling shareholders in the Four Corners Registration Statement, the Company will: (i) Promptly give to each Holder written notice thereof; and (ii) Include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event the right of any Holder to registration pursuant to Section 1.3 shall be conditioned upon such Holder's participation in such underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other Holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company, but subject to the reasonable approval of Holders holding a majority of the Registrable Securities to be included in such registration. Notwithstanding any other provision of this Section 1.3, if the managing underwriter determines that marketing factors require limitation of the number of shares to be underwritten, the 5 6 managing underwriter may limit the Registrable Securities to be included in such registration. The Company shall so advise all Holders and the number of shares of securities that may be included in the registration and underwriting (other than on behalf of the Company) shall first be allocated on a pro rata basis among all other Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders. No securities of the Company held by the Holders shall be included in any registration and underwriting to which this section applies if the number of shares held by parties who have exercised a right to demand the registration of such shares that would otherwise have been included in such registration and underwriting will thereby be limited. If any Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. 1.4 Selling Expenses. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders of such securities pro rata on the basis of the number of shares so registered. 1.5 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred twenty days or such shorter period during which the distribution described in the Registration Statement has been completed. (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. (c) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 6 7 (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. (Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.) (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 7 8 1.6 Indemnification. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such person within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable to any such person in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statements or omission (or alleged untrue statement or omission), made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein or the preparation thereby. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its 8 9 officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof) arising out of any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein or the preparation thereby. Notwithstanding the foregoing, the liability of each Holder under this subsection (b) shall be limited to an amount equal to the aggregate proceeds received by such Holder from the sale of Registrable Securities in such registration. (c) Each party entitled to indemnification under this Section 1.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any 9 10 settlement which does not include as an unconditional term thereof the giving by claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 1.7 Information by Holder. The Holders of securities included in any registration shall furnish to the Company such information regarding such Holders, the Registrable Securities held by them and the distribution proposed by such Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 1. 1.8 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times. (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of Company under the Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act"). (c) So long as a Holder owns any Registrable Securities to furnish to Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 1.9 Transfer of Registration Rights. The rights to cause the Company to register securities granted to the Holders under this Agreement may be assigned to a transferee or assignee in connection with any transfer or assignment of Registrable Securities by a Holder provided that: (i) such assignment or transfer may otherwise be effected in accordance with applicable securities laws, (ii) such assignee or transferee agrees to be bound by the terms and conditions of this Agreement, (iii) either (A) such assignee or transferee acquires at least 100,000 shares of Registrable Securities (appropriately adjusted for stock splits, combinations, dividends, distributions and recapitalizations) not sold to the 10 11 public, or (B) such assignee or transferee is a partner, shareholder, subsidiary, affiliate, family member, family trust or the estate of the Holder, and (iv) such assignment does not increase the number of registration statements the Company must file. 2. Miscellaneous. 2.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of Georgia. 2.2 Survival. The covenants and agreements made herein shall survive any investigation made by any Holder and the closing of the settlement contemplated hereby. 2.3 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof, and no party shall be liable or bound to any other party in any manner by any covenants or agreements except as specifically set forth herein. 2.5 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, certified or registered mail, return receipt requested, addressed (a) if to any Holder, at such Holder's address as set forth in the Company's records, or at such other address as such Holder shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address at 3343 Peachtree Road, Suite 530, Atlanta, Georgia 30326, or at such other address as the Company shall have furnished to such Holders in writing. 2.6 Delays or Omissions. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any Holder, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default under this Agreement thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other 11 12 breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement, or any waiver on the part of any Holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specially set forth in such writing. All remedies either under this Agreement or by law or otherwise afforded to any Holder shall be cumulative and not alternative. 2.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 2.8 Severability. If any provision of this Agreement, or the application thereof, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to persons or circumstances shall be interpreted so as best to reasonably effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. This Agreement is hereby executed as of the date first above written. FLIGHTSERV.COM, a Delaware corporation By: ----------------------------------------- Name: --------------------------------------- Title: --------------------------------------- THE HOLDERS -------------------------------------------- Langdon S. Flowers, Jr. -------------------------------------------- Langdon S. Flowers, Sr. -------------------------------------------- George McIntosh 12 13 Exhibit A to Registration Rights Agreement Name of Holder Number of Shares Owned -------------- ---------------------- 1. Langdon Flowers, Jr. 196,520 PLUS 781,776* 2. Langdon Flowers, Sr. 56,640 PLUS 344,792 3. George McIntosh 146,840 PLUS 95,215 * Simultaneously with the execution hereof, 127,100 shares have been transferred to The Community Foundation of Southwest Georgia, Inc. and 69,420 shares have been transferred to The Community Foundation of Southwest Georgia, Inc. as Trustee for the Langdon S. Flowers, Jr. and Amanda T. Flowers Charitable Remainder Unitrust. Upon receipt by the Company of an undertaking that such transferees agree to be bound by the terms and conditions of this Agreement, such transferees shall become Holders hereunder. 13 EX-10.1 3 NON-QUALIFIED STOCK OPTION AGREEMENT 1 NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as of the 2nd day of December, 1999, by and between FLIGHTSERV.COM, a Delaware corporation (the "Company") and ________________, an individual resident of the State of Georgia ("Optionee"). W I T N E S S E T H: 1. The Company hereby grants to Optionee as of the date hereof stock options to purchase ______________________________ shares of the common stock, $.04 par value, of the Company (the "Common Stock") exercisable at any time prior to 11:59 p.m., Atlanta time, on December 2, 2009 (the "Expiration Date") at a price of $4.00 per Option Share. "Option Share(s)" shall mean the share(s) of Common Stock which shall be purchased or shall be available for purchase upon exercise of the stock option granted hereby and any security which shall be issued in lieu of or in addition to any other Option Share by reason of any recapitalization, special dividend transaction or other such event as provided in Section 5 below. 2. Except as otherwise provided below, the option granted hereby may be exercised at any time, or from time to time, in whole or in part, until the Expiration Date. The exercise of all or any portion of the stock option granted hereby will be contingent upon stockholder approval of the Agreement and upon receipt by the Company of the advice of counsel to the Company that such Option Shares have been duly listed on the principal exchange on which the Company's securities are traded, and duly registered or are exempt from registration under the applicable securities laws and, in the absence of registration of the Option Shares and to the extent required by such counsel, the receipt from the Optionee of a representation that the Optionee intends at the time of such exercise to acquire the Option Shares for investment only and not for distribution or resale. 3. The Optionee may exercise all or any part of the stock option (in whole Option Shares) by delivering written notice to the Company of the number of Option Shares to be purchased together with cash or check, in payment of the full purchase price of the Option Shares to be acquired. Notice shall be sent to the Company at flightserv.com, 3343 Peachtree Road, N.E., Suite 530, Atlanta, Georgia 30326. The stock option shall be deemed to have been exercised on the date the Company receives the written notice and the required cash or check in full payment for the purchased Option Shares, or shares of Common Stock if the payment is to be made in such manner. A form of notice which will be deemed satisfactory by the Company is attached to this Agreement as Exhibit A. Upon any exercise of the stock option the Company shall cause to be delivered to the Optionee a certificate or certificates registered in the name or the Optionee for the number of Option Shares purchased. The Optionee shall not have any of the rights of a Stockholder with respect to the Option Shares except to the extent that the Optionee duly exercises the stock option granted hereby with respect to such Option Shares. As a condition of exercise of this option, the Company may, in its sole discretion, withhold or require 2 the Optionee to pay or reimburse the Company for any taxes which the Company determines are required to be withheld in connection with the grant or any exercise of this option. 4. Notwithstanding the foregoing provisions requiring payment by cash or check, if stock of the class then subject to this option is then "publicly traded" (as hereafter defined), then payment of the purchase price or any portion thereof may also be made in whole or in part with shares of the same class of stock as that then subject to this option, surrendered in lieu of the payment of cash concurrently with such exercise, the shares so surrendered to be valued on the basis of the Fair Market Value of the stock (as hereinafter provided) on the date of exercise, in which event the stock certificates evidencing the shares so to be used shall accompany the notice of exercise and shall be duly endorsed or accompanied by duly executed stock powers to transfer the same to the Company; provided, however, that such payment in stock instead of cash shall not be effected and shall be rejected by the Company if (a) the Company is then prohibited from purchasing or acquiring shares of the class of its stock thus tendered to it or (b) the right or power of the person exercising the option to deliver such shares in payment of the purchase price is subject to the prior interest of any person (other than the Company) as indicated by legends upon the certificate(s) or known to the Company. If the Company rejects the payment in stock, the tendered notice of exercise shall not be effected hereunder unless promptly after being notified of such rejection the person exercising the option pays the purchase price in acceptable form. If and while payment with stock is permitted in accordance with the foregoing provision, then the person then entitled to exercise this option may, in lieu of using previously outstanding stock therefor, use a portion of the shares as to which this option is then being exercised, in which case the notice of exercise need not be accompanied by any stock certificates but shall include a statement directing the Company to retain so many shares that would otherwise have been delivered by the Company upon that exercise of this option as equals the number of shares that would have been surrendered to the Company if the purchase price had been paid with previously issued stock. If the Company is required to withhold on account of any federal, state or local tax imposed as a result of any exercise of this option with previously issued stock or by retention of a portion of Option Shares under this section, then the stock surrendered or retained shall include an additional number of shares whose Fair Market Value equals the amount thus required to be withheld. For purposes hereof, "publicly traded" shall mean that a class of the capital stock of the Company is listed or admitted to unlisted trading privileges on a national securities exchange or designated as a national market systems security on an interdealer quotation system by the National Association of Securities Dealers, Inc. ("NASD") or if sales or bid and offer quotations are reported for that class of stock in the automated quotation system ("NASDAQ") operated by the NASD. Further, "Fair Market Value" shall mean the closing price of such stock as of the day in question or, if such day is not a trading day in the principal securities market or markets for such stock, on the nearest preceding trading day, as reported with respect to the market (or the composite of markets, if more than one) in which shares of such stock are then traded, or, if no such closing prices are reported, on the basis of the mean between the high bid and low asked prices that day on the principal market or quotation system on which shares of such stock are then quoted, or, if not so quoted, as furnished by a professional securities dealer making a market in such stock selected by the Board of Directors of the Company. 2 3 5. In the event of changes in the outstanding shares of Common Stock by reason of stock dividends, stock splits, subdivisions or combinations of shares, the number of Option Shares shall be correspondingly and fairly adjusted by the Board of Directors of the Company, the decision of which shall be final and conclusive. A corresponding adjustment shall be made without change in the total exercise price applicable to the unexercised portion of the Option Shares with a corresponding adjustment in the exercise price per share. 6. If the Company is merged, consolidated or effects a share exchange with another corporation (whether or not the Company is the surviving corporation), or if substantially all of the assets or all of the Common Stock is acquired by another corporation, or in the event of a separation, reorganization or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, shall make appropriate provision for the protection of the option granted hereby by the substitution on an equitable basis of appropriate stock of the Company, or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect to the shares of Common Stock, provided only that the excess of the aggregate fair market value of the Option Shares immediately after such substitution over the exercise price thereof is not more than the excess of the aggregate fair market value of the Option Shares immediately before such substitution over the exercise price thereof. Notwithstanding the preceding sentence, if the Company is merged, consolidated or effects a share exchange with another corporation or if substantially all of the assets or all of the Common Stock is acquired by another corporation, or in the event of a separation, reorganization or liquidation of the Company, then the Board of Directors of the Company or the board of directors of any corporation assuming the obligations of the Company hereunder may, on or before the thirtieth (30th) day following such event and upon written notice to the Optionee, provide that the option granted hereby must be exercised within sixty (60) days of the date of such notice or it will be terminated. 7. This Agreement shall not be assignable or transferable by Optionee otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order and the stock option hereby granted shall not be exercised by any person other than Optionee during Optionee's lifetime. After the death of Optionee, the person to whom Optionee's rights hereunder pass under Optionee's will or under the laws of descent and distribution shall be deemed the holder of the stock option granted hereby. 8. To the extent not superseded by federal law, the laws of Delaware shall control in all matters relating to this Agreement. 9. Optionee understands that the Option Shares are not registered under the Securities Act of 1933 (the "1933 Act") or any state securities act and will be issued to Optionee pursuant to exemptions from registration thereunder. Optionee also understands that applicable securities laws may restrict the right of Optionee to exercise the stock option or to dispose of any shares which Optionee may acquire upon any such exercise and may govern the manner in which such shares must be sold. Optionee shall not offer, sell or otherwise dispose of any of the Option Shares acquired by reason of the exercise of the stock option in any manner which would violate the 1933 Act or any other state or federal law or cause the Company to have to make any filing or take any action to avoid such a violation. 3 4 10. Optionee hereby represents that all Option Shares purchased by him pursuant to his exercise of all or any portion of the stock option will be acquired only for investment and not with a view to distribution or resale. 11. All pronouns, defined nouns and any variations thereof in this Agreement shall be deemed to refer to the masculine, feminine or neuter gender and to either singular or plural, whenever the context of this Agreement so requires. IN WITNESS WHEREOF, Optionee has executed and delivered this Agreement and the Company has caused this Agreement to be executed and delivered on its behalf by its duly authorized representative, as of the day and year above written. FLIGHTSERV.COM By: ---------------------------------- Its: --------------------------------- OPTIONEE ------------------------------------- 4 5 EXHIBIT A TO: flightserv.com 3343 Peachtree Road, N.E. Suite 530 Atlanta, Georgia 30326 Pursuant to the Non-Qualified Stock Option Agreement (herein called the "Agreement"), dated as of December 2, 1999, by and between flightserv.com (the "Company") and me, I hereby give notice that I elect to exercise the stock option granted under the Agreement with respect to ______ shares of the common stock of the Company as of the date on which this notice is delivered to the Company, and accordingly I hereby agree to purchase such shares at the price and on the terms established under the Agreement. Full payment for such shares is enclosed. Such payment consists of: __________ Cash __________ Check __________ shares of the Company's common stock, _____ of which are previously owned. I hereby represent and warrant that I am purchasing such shares for investment purposes only and not with a view to distribution or resale. I hereby agree that the stock option granted under the Agreement shall be deemed to have been exercised to the extent specified in this notice on the exercise date below my signature, and I hereby warrant that on such date this notice was delivered to the Company. Sincerely, ---------------------------------- (Sign Name) ---------------------------------- (Print Name) DATED: ------------------------ EX-10.2 4 SCHEDULE OF OPTION AGREEMENTS 1 EXHIBIT 10.2 SCHEDULE OF OPTION AGREEMENTS The following documents are substantially similar to the Form of Option Agreement included as Exhibit 10.1 herewith, except as otherwise noted: Option Agreement between the Company and C. Beverly Lance dated as of December 2, 1999 for 1,000,000 shares. Option Agreement between the Company and Arthur G. Weiss dated as of December 2, 1999 for 1,000,000 shares. Option Agreement between the Company and Dr. James Verbrugge dated as of December 2, 1999 for 200,000 shares. Option Agreement between the Company and Four Corners Capital, LLC dated as of December 2, 1999 for 200,000 shares. Option Agreement between the Company and William B. Astrop, Jr. dated as of December 2, 1999 for 50,000 shares. Option Agreement between the Company and Douglas D. Astrop dated as of December 2, 1999 for 50,000 shares. Option Agreement between the Company and William B. Astrop dated as of December 2, 1999 for 100,000 shares. Option Agreement between the Company and Sylvia A. de Leon dated as of December 2, 1999 for 200,000 shares. Option Agreement between the Company and Sylvia A. de Leon dated as of December 2, 1999 for 200,000 shares with an exercise price of $0.4375 per share. Option Agreement between the Company and Sylvia A. de Leon dated as of December 2, 1999 for 200,000 shares with an exercise price of $0.4177 per share. Option Agreement between the Company and Sylvia A. de Leon dated as of December 2, 1999 for 400,000 shares with an exercise price of $2.50 per share. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF FLIGHTSERV.COM FOR THE SIX MONTHS PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JUN-30-1999 JUL-01-1999 DEC-31-1999 1,240,000 0 1,059,000 0 0 0 0 0 12,815,000 0 0 0 0 1,271,000 2,816,000 12,815,000 0 526,000 0 28,238,000 0 0 241,000 (27,712,000) 0 (27,712,000) 0 0 0 (27,712,000) (.91) (.91)
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